Hiring your first employee is a milestone. It is also the moment your business takes on a set of legal obligations that do not go away. Getting employment contracts for small business right from day one is far cheaper than untangling a dispute later, and Australian workplace law leaves less room for improvisation than many owners expect.
The good news is that a compliant contract is not complicated once you know what belongs in it. This guide walks through what the law actually requires, the clauses every small business employment contract should contain, and the recent changes to the Fair Work Act that affect how you hire.
What Is an Employment Contract?
An employment contract is the agreement between your business and an employee that sets out the terms of the working relationship: the role, the hours, the pay, and the obligations on both sides. It can be written, verbal or even implied by conduct. If someone starts work and you pay them, a contract exists whether or not anything was signed.
That is exactly why a written contract matters. Verbal terms are easy to dispute and hard to prove. A clear written document protects both sides, sets expectations before day one, and gives you something solid to point to if a disagreement ever arises.
The Legal Floor: The NES and Modern Awards
No employment contract operates in a vacuum. Every employee in the national workplace relations system is covered by the National Employment Standards (NES), the minimum entitlements set by the Fair Work Act. These cover things like maximum weekly hours, annual leave, personal leave, public holidays, notice of termination and redundancy pay.
Most roles are also covered by a modern award, which layers industry-specific minimums on top: base pay rates, penalty rates, overtime, allowances and rostering rules.
Here is the rule that matters most: your contract can offer more than the NES and the applicable award, but it can never offer less. Any clause that undercuts these minimums is unenforceable, and the shortfall remains payable. You must also give every new employee a Fair Work Information Statement when they start, and every new casual must receive the Casual Employment Information Statement as well.
What Must Employment Contracts for Small Business Include?
There is no single prescribed template under Australian law, but a well-drafted contract for a small business should cover the following ten elements.
1. The parties
Name the correct legal entity as the employer, including its ABN or ACN, along with the employee’s full name and address. If you operate through a company or trust, make sure the entity signing the contract is the entity that actually employs the person. Owners who have recently changed their business structure get caught out here more often than you would think.
2. Position and duties
State the job title, who the employee reports to, and a description of duties that is specific enough to be meaningful but flexible enough to let the role evolve as your business grows.
3. Employment type and hours
Specify whether the role is full-time, part-time, casual or fixed-term, along with ordinary hours, days of work and the place of work, including any remote or hybrid arrangement.
4. Pay and superannuation
Set out the wage or salary, how often it is paid, and superannuation on top. The super guarantee rate is currently 12 per cent of ordinary time earnings. Always check the pay rate against the relevant award classification, not just against the market.
5. Leave entitlements
Reference annual leave, personal and carer’s leave and the other NES entitlements. You do not need to restate the legislation in full, but the contract must not contradict it.
6. Probation
A probationary period, typically three to six months, lets both sides assess the fit with shorter notice. Keep in mind that probation does not override unfair dismissal law: employees of small business employers gain protection after 12 months of service regardless of what the contract says.
7. Notice and termination
State the notice each side must give to end the employment, and the grounds for summary dismissal in cases of serious misconduct. Notice periods can exceed the NES minimums but cannot fall below them.
8. Confidentiality and intellectual property
Protect your client lists, pricing, processes and anything the employee creates in the course of their role. For small businesses built on know-how or a brand, these clauses do real work and are much harder to bolt on after someone has already started.
9. Restraint of trade
A restraint clause can stop a former employee poaching your clients or staff for a period after they leave. Courts will only enforce restraints that are reasonable in scope and duration, so a targeted clause is far more valuable than a blanket ban.
10. Policies
Reference your workplace policies, such as conduct, work health and safety, and social media, as directions the employee must follow rather than contractual promises. That way you can update policies as the business changes without renegotiating every contract.
Getting the Employment Type Right
Misclassification is the most expensive contract mistake a small business can make. Casual employees receive a loading, generally 25 per cent, instead of paid leave entitlements, and their contracts need specific casual terms. Fixed-term contracts are now capped in most cases at two years, including renewals, under rules introduced in December 2023.
The employee versus contractor line deserves particular care. If you set the hours, provide the tools and expect ongoing work, the person is likely an employee no matter what their invoice says. Getting this wrong can mean back payment of leave and superannuation, plus penalties for sham contracting. If you engage both employees and contractors, it is worth having both sets of employee and contractor agreements reviewed together so they match how your business actually operates.
Recent Changes Small Business Employers Should Know
Workplace law has moved quickly, and a contract drafted even a few years ago may already be out of date. Three changes stand out for small employers.
Right to disconnect. Since 26 August 2025, employees of small businesses can refuse to monitor or respond to work contact outside their working hours unless that refusal is unreasonable. The Fair Work Ombudsman’s guidance defines a small business employer as one with fewer than 15 employees.
Casual conversion. Under the employee choice pathway, a casual employed by a small business for 12 months can notify you in writing that they want to convert to permanent employment, and you can only refuse on limited grounds.
Pay secrecy. Clauses that stop employees discussing their pay are banned. If your template still contains one, it needs to go.
Common Mistakes to Avoid
- Using a generic or overseas template that ignores the NES and modern awards
- Paying a flat salary without checking it genuinely covers award entitlements like overtime and penalty rates
- Copying permanent terms into casual contracts, or the reverse
- Letting someone start work before the contract is signed
- Treating contracts as set-and-forget while the law changes around them
Frequently Asked Questions
Is a written employment contract legally required in Australia?
No. A contract can be verbal or implied and still be enforceable. A written contract is strongly recommended, though, because it is your best evidence of what was agreed, and some award and record-keeping obligations require key terms to be confirmed in writing.
What counts as a small business employer?
Under the Fair Work Act, a small business employer has fewer than 15 employees at a particular time, counting employees of associated entities and regular casuals. The threshold affects unfair dismissal rules, redundancy pay obligations and when new laws start applying to you.
Can a contract override an award or the NES?
No. The NES and any applicable modern award set the floor. A contract can improve on those minimums, but any term that falls below them is invalid and you remain liable for the difference.
Do I need a lawyer to draft an employment contract?
Not always. The free Employment Contract Tool on business.gov.au suits straightforward award-covered roles paid by the hour. For salaried roles, senior hires, or contracts that need confidentiality, IP or restraint protections, tailored legal drafting is worth the investment.
What happens if my contract undercuts the award?
The offending clause is unenforceable and the employee can recover the shortfall. Underpayment claims can reach back six years, and deliberate underpayment now carries serious penalties, so it pays to audit your contracts against the current award rates.
Final Thoughts
A solid employment contract is not about burying a new hire in legalese. It is about clarity: what the job is, what it pays, and what happens when things change. Get the fundamentals right and you remove most of the flashpoints that turn into Fair Work disputes.
If you are hiring and want contracts that actually fit your business, New Wave Law drafts plain-English employee and contractor agreements for small businesses on the Gold Coast and Australia-wide via virtual consult. Book a free consultation to get your contracts sorted before your next hire starts.
